REASONS
FOR JUDGMENT
(Reasons
delivered orally from the Bench on
March 4, 2016 at Toronto, Ontario)
Rowe D.J.
[1]
Initially, the Appellant’s appeal was with
respect to the 2005, 2007 and 2008 taxation years. At the outset, counsel for
the Appellant advised that the appeal was only with respect to the 2008
taxation year and the sole issue was whether the
imposition of the penalty pursuant to subsection 163(2) of the Income Tax
Act (the “Act”) is justified.
[2]
In determining the Appellant’s tax liability for
the 2008 taxation year, the Minister of National Revenue (the “Minister”) made
the following assumptions of fact as set forth in paragraph 19 of the
Reply to the Notice of Appeal, subparagraphs a) to j) inclusive:
a)
the appellant’s total income for the 2008
taxation year was $92,637.01 consisting of employment income from Canadian
Pacific;
b)
in filing his 2008 tax return, the appellant
claimed a business loss in the amount of $340,882.38 (the previously defined
“Claimed Agent Loss”);
c)
the Claimed Agent Loss resulted in a refund of
all taxes withheld at source for the 2008 taxation year;
d)
the appellant claimed in his income tax return
for the 2008 taxation year that the business was as an “Agent”;
e)
the Claimed Agent Loss in the amount of
$340,882.38 was not in respect of any business activity by the appellant;
f)
the appellant used $88,882.38 of the Claimed
Agent Loss against his income in the 2008 taxation year and requested that the
unused balance of $252,000 be carried back and applied to his 2005, 2006 and
2007 taxation years in the amounts of $84,500, $84,000 and $83,500,
respectively;
g)
the appellant claimed in his 2008 tax return
that the income from his “business” (detailed in paragraph 9 above) was
$92,637.01 (described as “Total money collected as Agent for Principal and
reported by third parties”) and $7,040.41 (described as “Additional money
collected as agent for principal and NOT reported by third parties”);
h)
the appellant claimed in his 2008 tax return
that his expenses, which were described as “Amount to principal in exchange for
labour”, were $248,245.37 (the “Disallowed Expenses”);
i)
the appellant signed his income tax return for
the 2008 taxation year “per: G. Anderson”;
j)
the appellant signed his form T1AE – Request for
Loss Carryback for the 2008 taxation year as “per: George Anderson”; …
[3]
The balance of the assumptions relate to the
Minister’s belief that the appellant knowingly participated in a de-tax group
in order to avoid paying tax and that he knew or ought to have known that the
claimed agent loss was in fact fictitious.
[4]
Counsel agreed the Appellant’s Book of Documents
could be filed as Exhibits A-1 and A-2 and the Respondent’s Book of Documents
as Exhibit R-1.
[5]
George Anderson (“Anderson”) testified. He was
born in 1955, is not married and has no children. He went to school
Grades 1 to 6 elementary, then Grades 7 and 8 at public school and started
Grade 9 where he found that he was having difficulty with the subjects,
particularly hard math, and wasn’t very interested and I suspect did not
attend very often, and as a consequence, he failed that grade.
[6]
He was fifteen when he left school and he found
that reading was somewhat difficult. He wasn’t able to relate to subjects that
were perhaps described as soft subjects such as drama. He had no further
education after he left school. He worked at auto body shops doing menial
tasks, then at Eatons, polishing the brass rails at Yonge Street and
then at a plant making cartons where he was sealing and stacking
boxes and later at a company that had vending machines and various metal
fixtures where he repaired damage and dents. Then, he got a job with Canadian
Pacific Railway (“CPR”). He started there in September of 1974. He was there
for 36 years. He started out as a labourer in the diesel shop cleaning
locomotives and whatever else had to be done. Then he was a labourer in the car
shop where the box cars are, and there is nothing but motors there, and he did
the same duties for six months, until he was promoted to carman’s helper,
brought parts and supplies to the tool room, and then he was a carman trainee
and worked with the carman involved in the process of doing repairs for four
years. That concerned changing of wheels, brake shoes, straightening doors and
changing floorboards in the cars and so on.
[7]
The appellant became a carman with fundamentally
the same duties but now worked on his own doing inspections in the yard
looking for broken items such as brakes and did visual checks for two or three
years.
[8]
He was promoted to a supervisor, which is equivalent
to a foreman and he was in charge of up to eight workers at a time and assigned
people to perform specific tasks. He did that job for 25 years until his
retirement in the year 2010.
[9]
Anderson stated that he had no training in tax
law or accounting or tax calculations or in business, and in everyday life, he
could read with comprehension, provided the subject matters were something of
which he was reasonably familiar. He had filed an income tax return every year
since the age of 16 back in 1971 or 1972.
[10]
He never prepared a tax return himself. His
mother prepared it for him until her death in the mid-1980s. Then he went to a
tax preparer named Brian Bower and saw him more than once. For the years 2003,
2004 and 2005, he utilized the services of Lisa’s Tax Service and does not
recall the fee that he paid. In 2007, a co-worker named Ed Hale did Anderson’s
return using software he had. Mr. Hale was a safety supervisor at CPR.
[11]
In 2008, the return was prepared by a fellow
called Muntaz Rasool. In November 2006, the appellant met Muntaz Rasool (“Rasool”)
referred to often in the testimony of witnesses, sometimes as Muntaz and
other times as Rasool. A co‑worker of the appellant, Chris Bartley
(“Bartley”), was a Process Manager at CPR and invited the appellant to a
meeting at his home where about eight other people had gathered to listen to a
business proposal presented by Rasool where he spoke about the opportunity to
invest in an entity called StockLogics which purported to be a joint venture
business operation.
[12]
Rasool handed out promotional material in the
form of leaflets which Anderson read but said he did not understand, but others
in the group – including Bartley – asked Rasool questions and he responded
immediately in a confident and professional manner.
[13]
The appellant stated he understood that as a
partner in the StockLogics joint venture, he would be able to deduct his share
of any business losses against his employment income from CPR. He identified
his signature on a six-page document – Exhibit R-2 – entitled StockLogics
Waiver and agreed to commit $10,000 as a participant or joint venture partner.
[14]
Before agreeing to participate in the
StockLogics promotion, Anderson inquired of Bartley about the qualifications of
Rasool and was told that Rasool was an experienced person in tax matters and a
certified tax consultant with many years of experience and that others at CPR
had dealt with him and had not encountered any problems.
[15]
Bartley invested in the program as did another
co-worker, Ed Hale, the man who had prepared Anderson’s 2007 tax return.
Anderson had spoken with Bartley about Rasool and was informed that he had
invested in what he believed was a legitimate charity – Destiny – linked to
Global Medic and that an investment of $10,100 had generated a tax refund of
over $20,000.
[16]
Bartley also informed Anderson that Rasool was a
tax consultant and accountant to another worker at CPR who also exercised a
management or supervisory function and operated one or more businesses in
addition to his full‑time employment. This individual had never encountered
any problem with the Canada Revenue Agency (“CRA”) as a result of Rasool having
prepared his income tax returns.
[17]
Anderson wrote a cheque, dated November 25,
2006, in the sum of $10,000 payable to StockLogics, a copy of which is attached
to the last page of Exhibit R-2.
[18]
Participation in the StockLogics program
produced a refund for Anderson’s 2007 taxation year but Bartley did not
participate again in 2008 as he had received enough benefits from the refunds
flowing from previous involvement with Rasool’s programs and had used the funds
to renovate his house and that had eliminated the need to obtain funds through
a line of credit.
[19]
Rasool never prepared any of his tax returns
and they continued to be prepared - as earlier - by Lisa from Lisa’s Tax
Service.
[20]
In 2008 late fall, the appellant attended a
meeting where Rasool spoke about the special method that he – as an expert –
could utilize to file returns that would produce significant refunds for his
clients. He assured people that it was legitimate and that it had been approved
by CRA.
[21]
At one point, Rasool showed Anderson the
relevant page of the tax return of some people known to the appellant - either
from working at CPR or their relatives - who had received large refunds and
this satisfied him that the methodology of Rasool was legitimate. Anderson
testified he did not particularly like Rasool but decided to use his services
because others trusted him and had not encountered any difficulty with CRA as a
result.
[22]
Anderson testified he did not understand the
concept explained by Rasool but knew it involved an obscure but legal method
whereby certain persons could exercise their right to – in effect – buy their
legal name back from the Crown that had assigned it at birth or thereafter –
and that this would entitle an individual to claim greater expenses as a
deduction against other income such as employment.
[23]
Rasool provided Anderson with the address of a
website which he visited. He read the contents but did not understand it any
better than when Rasool had talked about it but it was consistent with Rasool’s
explanation.
[24]
Anderson did not re-invest in the StockLogics
venture but as a result of his investment in the 2007 taxation year, received a
substantial refund based on a net business loss claimed in the amount of
$35,000.
[25]
When Anderson decided to retain the services of
Rasool to prepare his tax return for the 2008 taxation year, he met with him at
a Tim Hortons restaurant where Rasool provided him with his return of income
which is an exhibit at Tab 3 of Exhibit A-1.
[26]
Anderson testified that he looked at the first
page and that Rasool was flipping pages until arriving at the signature page
which Anderson signed but had not added the word “Per” in front of his
signature. The word “Per” was not there at that time.
[27]
He noticed the large amount of the refund in the
area above the signature line and inquired of Rasool why it was that large. He
received an explanation that it was because of the special knowledge that
Rasool had of the Act and the system of filing which had been approved by
CRA and which he had used in respect of other persons known to Anderson and
that refunds had been paid.
[28]
Anderson testified that the Statement of Agent
Activities was not in the return when it was presented to him. His name was
printed at the bottom but he does not think it was printed by him. His
signature does appear on the next page but – again – he did not add the word “Per”
nor was it there when he looked at that page.
[29]
When he signed his return at the Tim Hortons, he
noticed that the box required to be completed by the tax preparer was blank, so
he took his pen and wrote in the name of Muntaz Rasool in black ink. Anderson
could tell by his body language and demeanour that Rasool was not pleased. The
appellant did not insert the name of Rasool’s business or address as they were
unknown to him and he knew Rasool had many clients in the Oshawa area and met
them in a restaurant or other location.
[30]
Anderson testified he did not see any figures on
the page of the return where his income was shown at the top, nor the large
number – $340,882.38 - in brackets - further down that purports to be in regard
to business income and expenses resulting in a large loss.
[31]
Anderson has been an employee all his working
life and has never operated a business and stated he would have known that was
not correct had he seen it and taken note of that number. He was certain that
this page was either not in the return or was not shown to him by Rasool.
[32]
Anderson is also confident that the document –
marked page 23 in his return at Tab 3 of Exhibit A-1 – entitled Statement of
Agent Activities - was not in the return when he signed it. His name is printed
at the bottom but he had not seen that document until it was presented to him
by his counsel.
[33]
At page 20 of Exhibit A-1, Tab 3, there is a
document - entitled Request for Loss Carryback – and Anderson identified his
signature on the next page – 21 – but again stated he did not add the word
“Per” in front of his signature. Anderson stated that he never saw that
document at page 21.
[34]
On page 25, Anderson noticed the amount of the
refund entered at box 484 and again at box 466. He had never intended to claim
a business loss in his 2008 taxation year and knew it was not like his
investment in StockLogics where he was a participant in a joint venture and
able to utilize his share of any business losses to deduct against income from
CPR.
[35]
He had noticed the large amount of the claimed
refund - $25,179.34 – and had inquired about it and received an explanation
from Rasool that he found satisfactory and consistent with Rasool’s earlier
advice and explanation provided at a meeting and at subsequent meetings with
Rasool.
[36]
The appellant received a refund in the sum of
$25,179.34 in respect of his 2008 taxation year and after Rasool had telephoned
on several occasions to inquire whether the refund had been received by way of
direct deposit to Anderson’s bank, Rasool then demanded upon confirmation of
said deposit that a certain fee be paid to him which Anderson refused to pay
but did pay a lower amount of $11,000 from the proceeds of that refund.
[37]
After signing the return in places where
indicated, Rasool took it and told Anderson he would file it with CRA. Anderson
asked for a copy but was told that Rasool had brought only the original but
would provide one later. Despite later requests, no other copy was ever
provided to him.
[38]
There is an unsigned 2008 T1 General return in
the name of the appellant that has the word “COPY” written underneath that
title and the numbers pertaining to employment income and business income and
expenses and resulting loss and the amount of the claimed refund are the same
as in the return referred to earlier at Tab 3 of Exhibit A-1.
[39]
The origin of this document remains a mystery
but it was included in the Appellant’s Book of Documents and provided to the
respondent.
[40]
It may have come from the appellant’s subsequent
tax preparer Ed Gilmore but that is merely speculation on my part.
[41]
Anderson received a letter from CRA enclosing a
Business Questionnaire and requesting other information about the alleged
business that had produced the loss. He read the first part of the letter but
was on his way to work so left it in an envelope on the coffee table in his
friend’s house where he lived and that address was the one stated on his tax
return.
[42]
At work, he spoke to a co-worker about the
letter and was informed that the man’s daughter had received a similar letter
and that it was causing the family concern. After work, Anderson went home only
to discover that his friend thought the envelope was waste paper and threw it
in the fireplace where it was burned.
[43]
Anderson phoned CRA to speak to someone about
what had happened and whoever was on the other end of the line said, “So, your
dog ate your homework.” and promptly hung up. Anderson was put off by this
response and stated this prevented him from attempting further contact with CRA
so he contacted Rasool who informed him that his business entity had access to
lawyers who would look after the matter and that he had nothing to worry about.
[44]
CRA sent further letters and these were provided
to Rasool, but at some point in 2010, Rasool disappeared and none of the
individuals who had dealings with him could find him. Anderson contacted Ed
Gilmore who filed a Notice of Objection on his behalf, albeit it was only one
line and offered no real explanation for the objection except that the Minister
had erred in his assessment of business expenses.
[45]
The Minister issued a Notice of Confirmation
with respect to the various years at issue at that time as a result of the
Request for Loss Carryback filed with Anderson’s return. Anderson testified
that page one of that document was not in the return when he signed page two
and the word “Per” was not there at that time.
[46]
Anderson said he was well aware that he had
never operated a business and had been an employee throughout his working life
for nearly 40 years.
[47]
Was there a false statement in the return? Yes,
because Anderson had not operated a business in 2008. How did that information
get there? It may have been on the page where employment income was entered at
the top but Anderson was certain he had not seen that page and would have
noticed the large number of an alleged business loss. He is certain that page
one of the Statement of Agent Activities was not there and would have
questioned its purpose. He knew what his income was in 2008 and agreed the
number used by the Minister is correct.
[48]
I am satisfied on the evidence that Rasool took
away the return after it had been signed by Anderson and that he inserted
material such as page one of the Statement of Agent Activities and page one of
the Request for Loss Carryback so that it would appear as though Anderson had
been aware of the entire contents of those documents and was intending to rely
on them.
[49]
I do not know how Rasool eliminated the entry by
Anderson – in black ink – of his name in the box for professional tax
preparers but I am satisfied that Anderson made that entry and in doing so
encountered the obvious displeasure of Rasool.
[50]
These methods are consistent with the practice
of Rasool who is well known to CRA and the Tax Court of Canada as the
perpetrator of frauds and scams of various sorts, either alone or in a
conspiracy with other individuals, who have tricked many people into embracing
their bizarre theories to become part of that group commonly referred to as
de-taxers.
[51]
I doubt it would have been difficult for him to
utilize modern software to blank out the insertion of his name in the tax
preparer box and to scan a copy and reprint that page.
[52]
I find the evidence of Anderson to be credible
and the unscrupulous methods utilized by Rasool in this instance and in other
reported cases permits the inference to be drawn that he is prepared to utilize
sleight-of-hand when showing people where to sign a return and to insert
material in a return for filing with CRA that was not there when his client
signed it.
[53]
Subsection 163(2) of the Act reads as
follows:
163(2) Every person who, knowingly, or under
circumstances amounting to gross negligence, has made or has participated in,
assented to or acquiesced in the making of, a false statement or omission in a
return, form, certificate, statement or answer (in this section referred to as
a “return”) filed or made in respect of a taxation year for the purposes of
this Act, is liable to a penalty . . .
[54]
Pursuant to subsection 163(3), the burden of
establishing the facts justifying the assessment of the penalty is on the
Minister.
[55]
There are two elements that must be established
to justify the imposition of those penalties:
1. a
false statement in a return; and
2. knowledge or gross negligence in the making
of, assenting to or acquiescing in the making of that false statement.
[56]
I am satisfied on the evidence that Anderson did
not knowingly make that false statement nor did he assent to or acquiesce in
the making of that false statement concerning the claim of a business loss. The
question now becomes whether the penalty is justified because Anderson’s conduct
can be characterized according to the Crown as wilful blindness, which,
according to recent decisions of the Federal Court of Appeal, constitutes gross
negligence for the purpose of that subsection. There is also substantial jurisprudence
emanating from the Tax Court of Canada.
[57]
What basically got the ball really rolling was
the judgment of Mr. Justice Campbell Miller in Torres v Canada, 2013 TCC
380, 2014 DTC 1028 [Torres]. Justice Miller heard the appeal of six
taxpayers who had fictitious business losses that were claimed on the advice
and instructions provided by representatives of a group called Fiscal
Arbitrators who have become notorious in this Court.
[58]
Justice Miller reviewed the relevant
jurisprudence including recent decisions from the Federal Court of Appeal and
referred to his earlier decision in Bhatti v Canada, 2013 TCC 143, 2013
DTC 1129 [Bhatti], which also involved participation in a scheme
promoted by Fiscal Arbitrators.
[59]
In Torres, based on that jurisprudence
and the evidence heard in the six appeals before him, at paragraphs 65 and 66,
he stated as follows:
[65] Based
on this jurisprudence and the evidence that I have heard in the six Appeals
before me, I draw the following principles:
a) Knowledge of a false statement can be
imputed by wilful blindness.
b) The concept of wilful blindness can be
applied to gross negligence penalties pursuant to subsection 163(2) of the Act
and it is appropriate to do so in the cases before me.
c) In determining wilful blindness,
consideration must be given to the education and experience of the taxpayer.
d) To find wilful blindness there must be a
need or a suspicion for an inquiry.
e) Circumstances that would indicate a need
for an inquiry prior to filing, or flashing red lights as I called it in the
Bhatti decision, include the following:
i) the magnitude of the advantage or
omission;
ii) the blatantness of the false statement
and how readily detectable it is;
iii) the lack of acknowledgment by the tax
preparer who prepared the return in the return itself;
iv) unusual requests made by the tax preparer;
v) the tax preparer being previously unknown
to the taxpayer;
vi) incomprehensible explanations by the tax
preparer;
vii) whether others engaged the tax preparer or
warned against doing so, or the taxpayer himself or herself expresses concern
about telling others.
f) The
final requirement for wilful blindness is that the taxpayer makes no inquiry of
the tax preparer to understand the return, nor makes any inquiry of a third
party, nor the CRA itself.
[66] Did
the Appellants act with wilful blindness?
[60]
I will consider the factors that were identified
by Justice Miller in the analysis in Torres as they pertain to the
appellant in appeal. I have already spoken about the education of Anderson and
his working experience, which was involved with mechanical things and was often
highly repetitive, and in the early years, certainly was relatively menial in
nature. However, his last years at CPR involved a serious, responsible job
where he oversaw a group of people and he ensured that when the rail cars
started to roll again, they were safe and would not cause harm. But he was not
an individual who had any academic bent. As he said, he had difficulty with
what he called hard mathematics.
[61]
What was the suspicion or need to make an
inquiry? Well, what he did was that he relied on the advice he received
from his friend who he had known for 25 to 30 years at CPR and who basically
worked with him at the shop where he was employed. Bartley advised that there
was legally no particular difficulty with Rasool and that all had gone okay and
that he had received a refund on his income tax and that the program that
Rasool was promoting, whether it was StockLogics that Anderson also
participated in or the medical donation program, were in fact
legitimate.
[62]
Anderson was present at a meeting and Bartley
was there and also his friend, Ed Hale, and those people both invested along
with him in the StockLogics program.
[63]
With respect to the fee structure, for the first
many, many years, Anderson’s mother did the return, and thereafter, he had
another tax preparer, and then Lisa from Lisa’s Tax Services. He cannot recall
what he paid but it was not a substantial amount. It was a modest amount. The
money that he paid on the StockLogics program was an investment and he received
a return that was based on a business loss.
[64]
Another factor to be considered is the anonymity
of a tax preparer and a lack of acknowledgment in preparing returns. Well,
there was no anonymity here. Rasool was the man up-front who had prepared the
returns for other individuals that worked at CPR and had been recommended and,
in effect, warrantied or certified to be a legitimate professional with certain
qualifications. In total, he probably met Rasool five or six times.
[65]
Anderson noticed that when the return was handed
to him at the Tim Hortons, the tax preparer box was not filled out and he
grabbed his pen with black ink and he wrote in the name of Muntaz Rasool.
[66]
One of the factors is: was there a
blatantly false statement and was it readily detectable? Well, certainly, the
monstrous loss that was claimed in the return that arrived at CRA was clearly
false and would have been readily detectable had it and other material been in
that return at the time when Anderson signed it. I doubt very much whether even
the page with his employment numbers and the business loss were in that return
at that particular time.
[67]
A factor that was present in Torres and
many of these cases is whether the tax preparer makes unusual requests. In this
particular instance, it was not Anderson who added the word “Per” before his
signature. Anderson went on a website that was provided to him by Rasool and he
did not really understand it but it seemed to be about the same as the
explanations he had received earlier.
[68]
There is a reference to the appellant’s trust in
the tax preparer and any cohort that he may have had in the business. But in
this particular instance and perhaps it is fortunate, Rasool disappeared before
the typical kind of nonsense responses could be submitted to CRA.
[69]
It is significant to remember again that upon
receiving that first letter, even though he was on the way to work, he
discussed this with a co-worker and when he came home, he attempted to call CRA
and received the response that I have already related.
[70]
As a consequence, he contacted Rasool but at
that point in time was only told that Rasool’s organization had retained
counsel and that they would deal with CRA and that he was not to worry about
it. That basically was the last contact he ever had with Rasool.
[71]
The judgment of Justice Miller in Torres
was appealed to the Federal Court of Appeal in a decision reported as Torres
v Canada [appeal by Strachan], 2015 FCA 60, 2015 DTC 5044 (FCA). Justice
Dawson delivered the oral judgment of the court and, at paragraph 4, stated as
follows:
4. First, as conceded in oral argument by counsel for the appellant,
the Judge made no error in articulating the applicable legal test. Gross
negligence may be established where a taxpayer is willfully blind to the
relevant facts in circumstances where the taxpayer becomes aware of the need
for some inquiry but declines to make the inquiry because the taxpayer does not
want to know the truth …
[72]
There are the decisions in Canada (Attorney
General) v Villeneuve, 2004 FCA 20, 58 DTC 6576 (FCA) and Panini v
Canada, 2006 FCA 224, [2006] 5 CTC 12 on that particular point.
There are other decisions, including those of my colleague Deputy Judge Masse
in the cases of Chartrand v Canada, 2015 TCC 298 and Spurvey v Canada,
2015 TCC 300, in which the same topic was discussed with reference to other
cases including Gingras v Canada, 2000 TCJ No. 541 (QL), in which
Justice Tardif said:
19. Relying on an
expert or on someone who presents himself as such in no way absolves from
responsibility those who certify by their signature that their returns are
truthful.
…
30. It is the person signing a return of income who is accountable
for false information provided in that return, not the agent who completed it,
regardless of the agent’s skills or qualifications.
[73]
In the case of DeCosta v Canada, 2005 TCC
545, 2005 DTC 1436, Chief Justice Bowman (as he then was) noted that a
person can’t turn a blind eye to the omission of an amount that is twice as
much as what was declared and then referred to an attitude that is cavalier and
goes beyond simple carelessness. That term basically was used again in other
cases along with the language that an individual had recklessly abandoned his
responsibilities, duties and obligations under the Act, which is what
Justice Bédard referred to in the case of Laplante v Canada, 2008 TCC
335, [2008] TCJ No. 262.
[74]
In Brochu v The Queen, 2011 TCC 75, [2011]
4 CTC 2001, gross negligence penalties were upheld in the case where the
taxpayer simply trusted her accountant and stated that everything was fine. She
quickly flipped through her return and claimed she did not understand
the words “business income” and “credit”, but yet had not asked her accountant
or anyone else any questions in order to ensure that her income and expenses
were properly accounted for. Justice Favreau of this Court was of the view that
the fact that the taxpayer did not think it necessary to become informed
amounted to carelessness which constituted gross negligence.
[75]
In the case of Bhatti referred to
earlier, Justice Miller pointed out that it is insufficient merely to say that
a person didn’t review their returns and blindly trusted affairs to another
without even a minimal amount of verifying the correctness of the return goes
beyond carelessness.
[76]
Justice Valerie Miller in Janovsky v Canada,
2013 TCC 140, 2013 DTC 1127, dealt with the situation where the appellant did
not adequately review his return before he signed it and did not ask any
questions. In that case, there was also an examination and analysis of the
appellant’s education and magnitude of the false statement.
[77]
Another example is in the case of Atutornu v
Canada, 2014 TCC 174, 2014 DTC 1150, where the taxpayer simply blindly
relied on the advice of the tax preparer without reading or reviewing the
returns or without making effort whatsoever to verify the accuracy of the return.
[78]
Counsel for the respondent stressed the point
that Canada utilizes what is commonly referred to as a self-assessing system.
That is correct but it is not tantamount to a requirement that there must be
perfect or near-perfect compliance with every aspect of the return where there
is no intention to cheat or defraud the government or any reasonable capacity
to perceive that is taking place. People are human and modern tax systems
applicable to three levels of government are complex and changing almost on a
yearly basis.
[79]
We are concerned only with federal income tax
but the Act becomes more complex each year as new provisions are added
to satisfy some special interest group or geographical sector or business
activity and there is often the opportunity for certain deductions under
particular conditions which are often complex and difficult to comprehend even
by professionals working in the tax field.
[80]
Some people purchase software to assist them in
preparing a correct return, and not long ago, there were glitches in some of
those programs that permitted other income – for example – to be
unintentionally omitted.
[81]
Those of us who deal regularly with income tax
or business services tax or other forms of taxation must be wary of applying
our special knowledge to a situation and to use that as a yardstick by which to
judge the conduct of ordinary people who have little or no understanding of the
federal income tax system. As a result, they retain the services of tax
preparers for reporting income from employment or a small business or
accountants with a professional designation for more complex tax returns.
[82]
The overwhelming majority of these individuals
provide competent, honest service at a modest fee. But, the complexity of the
tax system and the levels of taxation are fodder for the bandits and scam
artists to develop a variety of phoney programs and schemes that appear
attractive to many people.
[83]
An old case from England reminded the officials
of Inland Revenue Service that it was completely permissible to avoid tax but
not to evade it. The legitimate tax shelters and other programs assist people
to minimize tax in certain years under certain conditions and there are
different levels of tax credits depending on the recipient of the donation. It
is tempting to want to berate an innocent, unsophisticated taxpayer who was
duped by clever, experienced crooks into participating in some scheme that we –
as professionals in the field – can identify as nonsense often at first glance.
[84]
Making a mistake and being victimized without
knowingly participating or by not acting in a manner where they are content to
allow the wool to remain pulled over their eyes permits – in my view – an
individual to be regarded as careless, naïve, neglectful or overly-trusting
without crossing the line and being assigned to the category of gross negligence
due to wilful blindness.
[85]
The duty of a taxpayer is to attempt honestly to
provide accurate information to the government about their affairs so that a
fair assessment can be issued. But, that duty is not absolute nor does it
attract strict liability. There are other penalties that are often imposed
pursuant to other provisions of the Act but subsection 163(2) is – for
good reason – a different beast and the consequences are harsh if the
imposition of that penalty is justified.
[86]
Counsel stressed the need for a taxpayer to do a
thorough review of the return prior to signing it even when relying on an
expert or purported expert who prepared the return. But, there are numerous
parts of a return that have no application to an individual taxpayer.
[87]
In the within appeal, page 11 dealing with an
Ontario Foreign Tax Credit and the Ontario Health Premium Chart was of no
interest to Anderson nor was the page dealing with Ontario Credits and Senior
Homeowner’s Property Tax Grant. He does not own a home. He lives in a house
with his friend, the one who inadvertently burned the envelope and contents
sent to the appellant by CRA.
[88]
It is not abnormal for any taxpayer to pay
attention only to those matters that are relevant to his or her situation in
accordance with the information provided to the preparer and the advice and
instructions subsequently provided at the time the return is signed.
[89]
That modern philosopher – the late George Carlin
– reminded us that one‑half of the world has less than average
intelligence.
[90]
These penalty cases are often fact-driven to a
large extent and there is a growing body of jurisprudence in this area due in
large part to the rise of the various de-tax movements and other assaults on
the systems of government by a disorganized group who adhere to a set of
bizarre and outlandish nonsense which is rooted in an anti-government posture
and a burning desire to rebel against authority.
[91]
These penalty cases are not unlike those involving
directors’ liability or unemployment insurance appeals where the judge must
decide whether the working relationship was one of contract of service or a
contract for service, in other words, employment or independent contractor.
Despite elaborate expositions by learned judges of Appellate Divisions of
various courts in different countries, it has often been pointed out that there
is no escape for the trial judge who must hear the evidence in each instance
and apply the jurisprudence accordingly based on findings of fact and
assessments of credibility of witnesses.
[92]
In the within appeal, I find the evidence of the
appellant to be credible. I also find the testimony of Chris Bartley to be
credible concerning his relationship with Rasool and the appellant and it
provided an insight into the modus operandi of Rasool who went so far as
to produce a business card identifying him as a Certified General Accountant
and a Tax Consultant.
[93]
There were no flashing lights or red flags
flying in the course of Bartley’s relationship with Rasool and the programs
promoted appeared to be reasonable and proper and had produced tax refunds.
Rasool had produced glowing letters of reference from prominent Ontario
politicians holding high office in relation to the Global Medic Program which
was supposedly linked to the one known as Destiny Health and Wellness Foundation
that was promoted by Rasool and had registered charitable status.
[94]
The onus is on the Crown to justify the
imposition of the penalty pursuant to subsection 163(2) of the Act.
Counsel has attempted to discharge that onus, particularly in the course of her
vigorous and rational submissions.
[95]
My duty is to make a decision based on my
findings based on the facts and to ensure that this conclusion is in harmony
with the jurisprudence. I have done the analysis as required by the Torres
decision of Mr. Justice Miller.
[96]
That analysis does not lead me to
conclude that in this particular instance the conduct of Anderson constituted
wilful blindness.
[97]
I have taken all of the evidence into account
and I have had the opportunity to review the relevant jurisprudence and
conclude the Crown has not discharged its onus, and therefore, the penalty
imposed with respect to the appellant’s 2008 taxation year is not justified.
[98]
The appeal is allowed with costs and the matter
is referred back to the Minister of National Revenue for reconsideration and
reassessment on the basis that the penalty previously imposed under subsection
163(2) of the Act in respect of the appellant’s 2008 taxation year be
deleted.
[99]
The appeals for the 2005 and 2007 taxation years
are dismissed.
Signed at Sidney, British Columbia,
this 14th day of April 2016.
“D.W. Rowe”
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